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Tactics to rein fixed expenses in plants

12 April 20185 min reading

“You need to evaluate where your business is now and where you want to take it in the future. A well thought-out road map is essential to properly forecast expenses and provide for contingencies. Take a look at the list of your expenses and find any expenses from the items that is of less important in the plant, or that you wouldn’t mind doing without. Cancel any unused or unwanted items. Explore new technologies that may help your business improve efficiency, increase productivity and reduce costs. Make people accountable for costs and establish appropriate rewards for employees who find ways to reduce expenses.”

Kehinde Peter OWONİFARİ

Kehinde Peter OWONIFARI  - Flour Mills of Nigeria PLC.

Fixed expenses is “any expense that does not change from period to period. The optimization of fixed expenses in plant is the action of making the best or most effect use of a situation or resources in the plant other to make profit. Fixed expenses do not change with output; firms must pay these even if they shut down. Examples include the rental costs of buildings; the costs of leasing or purchasing capital equipment; the annual business rate charged by local authorities; the costs of employing full-time contracted salaried staff; the costs of meeting interest payments on loans; the depreciation of fixed capital (due solely to age) and also the costs of business insurance.

Maintaining tight control over both fixed and variable expenses is an essential part of maximizing cash flow and profits in your business. There are a variety of tactics entrepreneurs can employ to rein in expenses and prepare for unforeseen costs that crop up over the course of the year.

1. Make a plan You need to evaluate where your business is now and where you want to take it in the future. A well thought-out road map is essential to properly forecast expenses and provide for contingencies.

For instance, if you intend to pursue a new market next year, you have to build the related expenses into your forecast.

2. Track expenses diligently You have to understand your historic costs before planning for the future. This requires gathering data in an effective and efficient way.

Tracking your costs shouldn’t be an afterthought, it needs to be an integral part of your ongoing operations

3. Benchmark against your industry Establish metrics that are meaningful to your business and comparable to those used by other companies in your industry. “If you see you’re spending more in certain categories, then drill down, investigate why and take appropriate action to reduce those costs to industry norms.”

4. Manage variable costs Look at your company’s past variable expenses and calculate what percentage of sales they represent. Historic percentages provide both a good indictor of potential future costs and a benchmark to use in keeping those costs in line with selling activity.

5. Get tough on fixed costs People tend to become complacent about fixed costs because they are generally recurrent and often reflect long-standing relationships with suppliers. But you should periodically test the market to see if you can get a better deal from competing suppliers.

“It’s good practice to get two or three quotes regularly, Whether it’s by putting out a request for proposal (RFP) or a less formal method, it’s important to send out the message that you are always watching your costs.”

6. Invest in technology Explore new technologies that may help your business improve efficiency, increase productivity and reduce costs. For example, many companies are now using cloud computing systems as opposed to in-house hardware that can be relatively expensive to buy and maintain

7. Offer incentives to staff Make people accountable for costs and establish appropriate rewards for employees who find ways to reduce expenses. This helps to create a zero waste culture within your organization. It also helps motivate staff members charged with implementing expense-reduction initiatives to stay on task and be creative.

“I like to explain overall expense management in three Rs: Research, Review and Respond. It basically boils down to careful planning (research), making tweaks and adjustments as they’re needed (review) and rolling up your sleeves to do the necessary and ongoing hard work to achieve the plan (respond).”

How to Optimize Fixed Expenses in the plant and save. • Only Pay for Things You are Actually Using Take a look at the list of your expenses and find any expenses from the items that is of less important in the plant, or that you wouldn’t mind doing without. Cancel any unused or unwanted items. Also ensure optimum utilization of the materials and resources used in your plant. so even labor was considered a “fixed” cost or expenses ,survey the plant operations to know if you have excess staffs, search for those giving you results and find a way to retrench or redeploy the excess staffs, doing these you have more savings and maximum utilization of labor.

• Pay the Lowest Price You Can Get for the Things You Do Want Now take a look at items of the monthly expense list. Are you paying the best price available? For things like loans, machines spares part, staff salaries you may not have a choice. But for monthly service items like Internet and cell phone, odd are you can negotiate a lower monthly rate.

Over the next couple of days, call each of these supplier or companies up and ask for a better monthly rate. Tell them you love their service, but to continue you’d need to pay less each month. If only a couple of these companies bite, you’re going to save some money each month. If they don’t go down on their price, look to a competitor for a quote. They will likely do what it takes to get your business.

The bottom line is to only have fixed expenses for the things you really want. And then pay the best price you can find for those things.

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